3  3  £•  * ; 

Fits 

C  o  VA  ^ 

Reprinted  from  the  Proceedings  of  the  American  Political  Science  Asso 

ciation,  Chicago,  December  28-30,  1904. 


STATE  SUPERVISION  OF  LOCAL  FINANCE. 

JOHN  A.  FAIRLIE. 

Mr.  Bryce  cites  as  one  of  the  merits  of  our  federal  system  of 
government,  that  the  separate  states  can  try  experiments  in 
legislation  and  administration;  and  that  other  states  profit  by 
the  experience  of  those  who  first  introduce  new  methods. 
Both  of  these  statements  can  be  supported  by  important  evi¬ 
dence  ;  but  the  benefits  derived  in  this  way  have  been  much  less 
than  they  might  have  been,  owing  to  the  lack  of  means  for 
bringing  the  results  of  experiments  in  one  state  to  the  atten¬ 
tion  of  other  states.  This  Association  can  in  some  measure 
supply  this  need,  and  reduce  the  enormous  waste  in  experi¬ 
mental  legislation,  by  furnishing  a  clearing  house  for  the  in¬ 
terchange  of  notes  on  the  work  of  the  various  states.  And 
this  paper  is  a  small  contribution  in  that  direction,  calling  at¬ 
tention  to  some  significant  legislation  in  a  number  of  states, 
and  showing  the  correlation  of  measures  apparently  un¬ 
connected. 

Local  administration  in  the  United  States  during  the  first 
half  of  the  nineteenth  century  developed  steadily  in  the  direc¬ 
tion  of  a  completely  decentralized  regime.  Our  constitutional 
system  inevitably  made  the  local  authorities  subject  to  the  state 
legislatures;  and  there  was  always  a  large  amount  of  legisla¬ 
tive  control  limiting  the  scope  of  local  action.  But  within 
the  limits  of  powers  conferred  by  the  legislature  there  came 
to  be  no  administrative  supervision  over  the  acts  of  the  local 
officials. 

During  the  last  half  century  there  has  been  in  evidence  a 
counter  wave,  making  its  way  slowly  and  with  difficulty,  and 
as  yet  far  from  overcoming  the  earlier  tide;  but  nevertheless 


2 


gaining  in  force  as  time  goes  on.  In  many  branches  of  admin¬ 
istration  there  have  been  established  state  officers  and  boards 
with  varying  powers  of  inspection  and  supervision  over  local 
officials.  This  has  been  the  case  in  the  field  of  health  regula¬ 
tion  (of  which  we  have  just  heard),  in  charity  administration, 
in  school  management  and  in  local  finance. 

It  is  with  the  movement  towards  state  administrative  super¬ 
vision  in  the  last  named  of  these  fields  that  this  paper  is  con¬ 
cerned.  It  is  proposed,  first  to  describe  what  has  been  ac¬ 
complished  in  those  states  where  most  has  been  done ;  and  then 
to  consider  the  general  principles  of  a  wise  policy  in  this  mat¬ 
ter.  What  has  been  done  has  been  mainly  in  reference  to 
Taxation  and  Accounting.  What  will  be  said  as  to  a  general 
policy  will  consider  also  the  question  of  local  indebtedness. 

TAXATION. 

Local  authorities  in  this  country  have  only  such  power  of 
taxation  as  is  conferred  by  the  legislatures.  And  as  yet  no 
local  authority  in  this  country  has  been  given  power  to  deter¬ 
mine  for  itself  what  kind  of  taxes  it  should  levy,  but  may  levy 
only  those  taxes  specifically  authorized  by  statutes.  There  is 
therefore  no  room  for  administrative  supervision  in  this  direc¬ 
tion,  since  the  local  authorities  have  no  sphere  of  independent 
action. 

As  to  the  rate  of  taxation  local  discretion  is  also  closely 
limited.  For  some  taxes,  notably  the  tax  or  license  for  the 
sale  of  liquors,  the  state  law  specifies  the  rate  as  well  as  the 
nature  of  the  tax.  For  the  general  property  tax  more  lee¬ 
way  is  given;  but  on  the  one  hand  the  local  authorities  are 
compelled  by  statute  to  levy  taxes  to  meet  certain  expendi¬ 
tures,  and  on  the  other  hand  are  usually  restricted  as  to  the 
aggregate  tax  rate;  and  between  this  Scylla  and  Charybdis 
a  narrow  course  must  often  be  steered.  Under  these  circum¬ 
stances  again  there  is  little  opportunity  for  administrative 
supervision ;  and  none  has  developed. 

When,  however,  we  turn  to  the  assessment  of  property  for 
the  general  property  tax,  we  find  a  wide  field  for  local  dis¬ 
cretion,  and  in  recent  years  significant  steps  in  the  direction 


f 


of  administrative  supervision.  Under  the  methods  prevailing 
in  the  early  part  of  the  nineteenth  century,  local  assessors  had 
complete  freedom  in  the  valuation  of  property,  not  only  for 
local  taxes  but  also  for  state  taxes.  It  was  in  reference  to 
the  state  taxes  that  the  first  step  was  taken  in  the  direction  of 
administrative  supervision^  Beginning  apparently  in  Ohio 
in  1825,  state  boards  of  equalization  have  been  established  in 
most  States,  with  power  to  change  the  aggregate  valuation  of 
counties  so  as  to  equalize  the  apportionment  of  the  state  tax. 
These  state  boards  of  equalization  differ  widely  in  their  or¬ 
ganization  ;  but  none  of  them  have  the  necessary  means  to  per¬ 
form  their  work  satisfactorily.  In  some  states  they  have  been 
composed  only  of  ex-officio  members,  elected  to  other  positions, 
and  therefore  unable  to  give  much  attention  to  their  duties  in 
regard  to  assessments.  In  several  states  the  boards  are  com¬ 
posed  of  a  large  number  of  members,  elected  in  local  districts, 
who  give  only  a  small  part  of  their  time  to  this  service, — the 
extreme  case  being  found  in  Ohio,  where  it  is  composed  of 
forty  members,  who  meet  once  in  ten  years.  In  a  few 
states,  as  New  York  and  California,  there  is  a  small  number 
of  salaried  members,  giving  most  of  their  time  to  this  work 
and  that  of  direct  assessment;  but  even  in  these  cases  it  is 
impossible  for  the  board  to  make  a  complete  investigation  of 
the  local  assessments  that  would  be  necessary  for  an  accurate 
equalization. 

Tax  commissioners  and  economists  have  discussed  at  length 
the  failures  and  defects  of  these  boards  of  equalization.  More¬ 
over  they  do  not  come  strictly  within  the  subject  of  this  paper; 
and  have  been  noted  simply  as  the  first  stage  of  supervision/ 
which  paved  the  way  for  later  centralizing  developments. 
We  may  therefore  proceed  to  consider  the  latter,  considering 
them  in  the  logical  rather  than  in  their  chronological  order. 

It  may  be  noted  here  that  these  centralizing  tendencies  in 
relation  to  local  taxation  have  been  but  one  aspect  of  more 
general  changes  in  the  tax  laws.  And  it  may  be  said  that  it 
was  only  after  the  States  had  introduced  some  control  over  the 
administration  of  assessments  for  state  revenue,  that  the 
importance  and  complexity  of  the  work  of  local  assessors  and 


1 


the  need  for  effective  supervision  over  their  local  duties  was 
understood. 

Effective  state  supervision  over  local  assessing  officers  seems 
;  to  have  been  first  established  in  Indiana.  In  1891  there  was 
established  in  that  state  a  State  Board  of  Tax  Commissioners, 
consisting  of  two  salaried  members  in  addition  to  the  ex-officio 
members  of  the  former  State  Board  of  Equalization :  to  pre¬ 
scribe  all  forms  of  books  and  blanks  used  in  the  assessment 
and  collection  of  taxes;  to  construe  the  tax  and  revenue  laws 
of  the  state  and  give  instructions  to  local  officers  when  re¬ 
quested  ;  and  to  see  that  all  assessments  of  property  were  made 
according  to  law;  and  to  visit  each  county  in  the  state  at  least 
once  a  year  to  hear  complaints,  collect  information  and  secure 
compliance  with  the  law.  Besides  carrying  out  these  manda¬ 
tory  powers,  the  State  Tax  Commissioners  have  since  1894 
annually  called  the  county  assessors  of  the  state  to  an  annual 
conference.1 

v'ffn  1896  a  board  of  Tax  Commissioners  was  established  in 
New  York  with  somewhat  less  authority  including  the  pow6r 
to  investigate  and  examine  methods  of  assessment  within  the 
state;  to  furnish  local  assessors  with  information  to  aid  them; 
and  to  ascertain  whether  the  local  assessors  faithfully  dis¬ 
charged  their  duties. 

A  Michigan  statute  of  1899  provided  for  a  board  of  Tax 
Commissioners  with  power :  to  exercise  general  supervision 
over  the  local  assessing  officers;  to  confer  and  advise  with 
them  as  to  their  duties;  to  visit  each  county  in  the  state  once 
a  year,  to  hear  complaints  and  secure  the  full  assessment  of 
all  property  in  the  state.  They  were  also  empowered  to  sum¬ 
mon  and  examine  witnesses  under  oath,  to  inspect  the  local 
assessment  rolls,  to  change  the  assessment  and  to  add  to  the 
rolls  property  not  assessed. 

And  a  Wisconsin  statute  of  the  same  year  provided  for  a 
Tax  Commissioner  with  two  assistants  to  have  general  super¬ 
vision  over  the  system  of  taxation  throughout  the  state,  with 
specific  authority  to  require  reports  from  local  officers.  Two 

1Rawles:  Centralizing  Tendencies  in  the  Administration  of  Indiana, 
273,  276. 


5 


years  later  added  powers  were  conferred :  to  supervise  local 
assessors  and  boards  of  review;  to  advise  and  direct  local  as¬ 
sessing  officers,  and  to  initiate  proceedings  to  enforce  the  laws 
against  negligent  or  delinquent  officials ;  and  to  visit  the 
counties  and  investigate  the  methods  of  local  assessors.  An¬ 
other  statute  of  1901  created  the  new  office  of  county  super¬ 
visor  of  assessment,  with  powers  of  supervision  over  town  and 
city  assessors. 

These  administrative  measures  have  not  solved  all  of  the 
difficulties  connected  with  the  assessment  of  property  for  taxa¬ 
tion  ;  but  in  most  of  these  states  they  have  brought  about  a  de¬ 
cided  improvement  both  in  methods  and  results.  Statistical  " 
results  are  less  striking  in  New  York  than  in  the  other  states, 
partly  perhaps  because  the  powers  of  the  state  tax  commis¬ 
sioners  are  less,  and  partly  because  of  the  subsequent  develop¬ 
ment  of  special  taxes  for  state  revenues  which  has  apparently 
caused  a  relaxation  of  the  supervision  of  local  assessments, 
now  used  mainly  for  local  purposes.  But  in  Indiana  the  as¬ 
sessed  valuation  of  real  estate  was  increased  by  44  per  cent, 
in  one  year  after  the  new  system  went  into  effect."  In  Michi¬ 
gan  the  assessed  valuation  of  property  has  increased  over  60 
per  cent,  from  1899  to  1903. 3  And  in  Wisconsin  where  the 
most  thorough  system  of  supervision  has  been  established, 
local  assessments  more  than  doubled  in  three  years.4  And  it 
may  be  further  noted  that  in  each  of  these  three  states  the 
aggregate  assessed  valuation  of  property  is  from  30  to  50 
per  cent,  larger  than  in  the  neighboring  state  of  Illinois, 
whose  population  and  wealth  is  more  than  double  that  of  the 
other  states,  but  where  there  is  no  efficient  system  of 
supervision. 

Years  before  these  recent  measures  for  the  supervision  of 
local  assessors  there  began  the  policy  in  many  states  of  a 
more  complete  centralization  in  the  assessment  of  special 

2  $553,937,744  in  1890;  $898,600,323  in  1891.  Rawles,  276. 

3  $968,189,097  in  1899;  $1,537,355,738  in  1903. 

4  $648,035,848  in  1899;  $1,369,811,147  in  1902.  Report  Wisconsin  Tax 
Com.,  1903,  p.  10. 


5 

classes  of  property,  especially  railroads  and  more  recently  other 
transportation  companies  and  also  telegraph  and  telephone 
companies.  In  fact  only  in  Rhode  Island,  New  Mexico  and 
Texas  are  railroads  still  assessed  only  by  local  authorities.  In 
some  cases  this  centralization  of  assessment  has  been  part  of 
the  movement  to  secure  such  taxes  for  the  state  treasury;  but 
in  a  number  of  states — notably  in  Indiana  and  Illinois  since 
1872 — the  state  assessment  of  such  property  has  been  used  for 
purposes  of  local  taxation.  Usually  this  centralized  state  as¬ 
sessment  has  been  established  only  for  the  property  of  cor¬ 
porations  extending  over  a  large  number  of  local  taxing  dis¬ 
tricts;  but  in  New  York,  under  a  law  of  1899,  the  state  Tax 
Commissioners  assess  for  local  taxation  the  value  of  special 
franchises  in  the  public  streets,  which  are  for  the  most  part 
held  by  local  companies;  and  in  1901  the  Indiana  Tax  Com¬ 
mission  was  given  charge  of  the  assessment  of  street  and  elec¬ 
tric  railways.  The  New  York  Franchise  Tax  Law  has  been 
of  great  value  in  drawing  attention  to  a  large  amount  of 
wealth  that  had  previously  escaped  taxation;  but  it  may  be 
questioned  whether  the  separation  of  the  franchise  from  other 
property  elements  or  the  complete  centralization  in  the  assess¬ 
ment  of  distinctly  local  property  is  necessary  or  altogether 
advisable.  In  other  states  the  value  of  such  special  franchises 
is  now  often  included  (without  additional  legislation)  in  the 
general  assessment  of  the  owners  in  the  ordinary  course  of 
valuing  property  for  taxation. 

AUDITING  AND  ACCOUNTING. 

State  supervision  over  local  accounts  is  as  yet  less  developed 
than  state  supervision  over  local  assessments.  This  is  per¬ 
haps  not  surprising  in  view  of  the  fact  that  in  most  States 
fthe  accounts  of  state  finances  are  very  far  from  satisfactory. 
It  is  true  there  have  been  state  Auditors  and  Comptrollers 
since  the  establishment  of  state  governments — and  in  some 
cases  similar  officers  in  colonial  times.  But  the  functions  of 
such  officers  have  often  been  limited;  while  primitive  methods 
of  book-keeping  established  in  the  days  of  insignificant  finan¬ 
cial  transactions  have  remained  in  use  after  expenditures  have 


7 


come  to  be  counted  in  millions  of  dollars,  and  in  the  face  of 
the  development  of  systematic  accounting  in  private  and  cor¬ 
porate  business.  Indeed  the  imperfect  and  inadequate  ac-^ 
counting  methods  of  the  larger  cities  have  often  been  some¬ 
what  better  than  those  of  the  states  within  which  the  cities 
are  located. 

But  within  recent  years  there  have  been  significant  measures 
taken  both  to  establish  satisfactory  accounting  systems  for 
the  state  finances,  and  also  to  establish  state  supervision  over 
the  accounts  of  local  officers.  It  is  only  the  latter  part  of 
this  development  that  can  be  here  considered. 

Massachusetts  seems  to  have  been  the  first  state  to  have 
undertaken  any  effective  control  over  local  accounts.  And 
here  the  supervision  has  been  confined  to  officers  of  the  coun¬ 
ties,  which  in  that  state  hav$  never  developed  any  vigorous 
local  autonomy.  Thus  appropriations  and  tax  levies  for  each 
county  except  Suffolk  have  long  been  voted  by  the  legislature, 
although  this  is  largely  a  matter  of  form  and  the  estimates 
and  proposals  of  the  county  commissioners  are  regularly 
adopted.  In  1879,  however,  the  commissioners  of  savings 
banks  were  authorized  and  required  to  inspect  the  books  and 
accounts  of  most  of  the  county  officers,  with  power  to  require 
uniformity  in  methods  of  keeping  accounts  and  financial  re¬ 
ports  in  accordance  with  prescribed  forms.  In  1887  the 
state  supervision  was  made  more  effective  by  placing  it  in 
the  hands  of  a  newly  established  office  of  controller  of  county 
accounts,  whose  duties  included  the  accounts  of  some  officers 
previously  exempted. 

Valuable  results  have  come  from  this  supervision  of  county 
accounts.  Irresponsible  methods  disclosed  in  the  70’s  have 
been  corrected;  and  important  reforms  have  been  introduced. 
Governor  Bates  two  years  ago  testified  to  the  good  that  has 
been  devised  from  the  uniform  system  of  accounting  estab¬ 
lished  in  the  counties;5  and  endorsed  a  similar  supervision  over 
municipal  accounts. 

5  R.  H.  Whitten:  Administration  in  Massachusetts,  149-151  (Columbia 
University  Studies  in  Political  Science,  vol.  8).  Annual  Message  of  Gov¬ 
ernor  Bates,  January  8,  1903. 


8 


One  of  the  youngest  states  in  the  far  west  was  the  next  to 
follow  up  these  partial  measures  of  the  old  Puritan  Common¬ 
wealth,  by  establishing  a  comprehensive  system  of  state  super¬ 
vision  over  local  accounts.  The  Constitution  of  Wyoming, 
adopted  in  1890,  provided  for  the  office  of  State  Examiner  to 
examine  the  accounts  of  certain  state  officers,  clerks  of  courts, 
county  treasurers  and  such  other  duties  as  the  legislature 
might  prescribe.  This  was  followed  by  the  enactment  of 
statutes,  which  before  long  placed  under  the  supervision  of 
this  officer  the  accounts  of  every  public  officer  in  the  state 
handling  public  funds;  authorized  him  to  establish  a  uniform 
system  of  book-keeping  by  the  state  and  local  officials,  and  to 
examine  their  accounts;  and  made  provisions  for  further  action 
in  cases  of  defalcation  discovered  through  his  examinations. 
The  same  officer  has  also  supervision  over  banks  and  other 
private  financial  institutions. 

“  The  examination  of  public  accounts  is  technical  and  em¬ 
braces  the  checking  of  every  item  whether  great  or  small,  the 
subsequent  footing  of  the  cash  accounts,  and  finally  their 
summation.  Every  account  paid  is  closely  examined,  the 
nature  of  the  expense  ascertained,  the  legality  of  the  bill  in¬ 
quired  into,  and  the  amount  is  finally  checked  to  the  stub  of 
the  warrant  issued,  and  also  entered  in  the  proper  column  of 
the  expense  register.  Whether  or  not  the  officer  conducted 
the  affairs  of  his  office  in  conformity  with  the  statute  is  also 
made  a  subject  of  inquiry. 

“  The  examination  made,  a  written  report  setting  forth  the 
results  accompanied  with  criticisms,  requirements  and  recom¬ 
mendations  is  prepared  and  filed  with  the  Governor  and  a  copy 
thereof  filed  with  the  officer  or  officers  whose  accounts  were 
the  subject  of  investigation.  Should  it  appear  that  there  had 
been  violations  of  law  in  the  conduct  of  any  office,  the  ex¬ 
aminer  must  report  thereon,  and  he  has  authority  to  enforce 
his  rulings.  In  case  of  defalcation  or  embezzlement,  his 
findings  are  absolute,  until  reversed  by  the  district  or  other 
court  having  jurisdiction. 

“  In  case  of  the  default  of  any  treasurer  and  the  inability 
of  such  officer  to  replace  funds  illegally  used  within  the  time 


9 


designated  by  the  examiner,  the  examiner  shall  at  once  assume 
charge  and  in  all  respects  he  becomes  the  legally  constituted 
treasurer  of  the  state,  county,  municipality,  or  school  dis¬ 
trict,  as  the  case  may  be. 

“Another  important  feature  is  the  meeting  of  the  examiner 
with  the  constituted  boards  authorized  to  make  the  annual  tax 
levy.  At  such  time  the  expense  budget  for  the  ensuing  year 
is  carefully  canvassed  and  reductions  made  wherever  possible. 
This  paves  the  way  for  a  reduced  levy  of  taxes,  and  frequently 
the  total  levy  may  be  reduced  from  one-fourth  to  one  mill 
or  more  as  compared  with  the  previous  year.”  6 

Striking  evidence  may  be  adduced  of  the  benefits  resulting 
from  this  system  of  supervision  in  Wyoming.  In  1892  the 
expenditures  of  the  twelve  counties  in  the  state  were  $412,000, 
while  only  two  counties  were  on  an  approximate  cash  basis, 
the  others  generally  allowing  their  expenses  to  exceed  their 
revenues  and  issuing  illegal  warrants  to  pay  bills.  In  1899, 
with  thirteen  counties,  the  total  expenditures  had  been  re¬ 
duced  to  $295,000;  and  every  county  was  on  a  cash  basis  with 
a  surplus  at  the  end  of  the  year.7  Several  Governors  of  the 
state  have  specially  commended  the  work  of  the  State  Ex¬ 
aminer  in  their  messages  to  the  state  Legislature.8 9 

Other  states  near  Wyoming  soon  followed  its  example  to 
some  extent.  Montana  and  North  Dakota  have  each  created 
the  officer  of  State  Examiner,  with  power  to  examine  books 
and  prescribe  accounting  methods  in  county  officers,  as  well 
as  state  institutions.  South  Dakota,  Nebraska  and  Kansas 
have  provided  a  less  effective  supervision, — in  the  two  first 
named  through  the  State  Auditor;  in  the  last  named  through  a  j 
State  Accountant.0  More  recently  (in  1903)  Nevada  has  es¬ 
tablished  a  more  intensive  system  of  control.  A  State  Board 

6  H.  B.  Henderson,  in  Nat.  Mun.  League,  Conference  in  Good  City 
Govt.,  1900,  pp.  251-252. 

7  H.  B.  Henderson,  in  Nat.  Mun.  League,  Conference  in  Good  City 
Govt.,  1900,  p.  251. 

8  Governor  Wm.  A.  Richards  in  1899,  and  D.  F.  Richards  in  1903. 

9  Nebraska,  Laws  of  1893,  ch.  15 ;  Kansas  Laws  of  1895,  ch.  247. 


TO 


of  Revenue  must  approve  the  debts  of  local  governments,  pre¬ 
scribe  the  forms  for  financial  reports  to  the  State  Comptroller, 
and  employ  an  examiner  to  inspect  the  accounts  and  records.10 
And  in  the  same  year  the  extreme  southern  state  of  Florida 
created  the  office  of  State  Auditor,  whose  chief  duty  is  to  pre¬ 
scribe  the  form  of  county  accounts  and  see  by  inspection  that 
they  are  properly  kept.11 

^  In  the  State  of  Flew  York  something  has  been  accomplished 
in  the  same  direction.  Beginning  in  1892  the  State  Comp¬ 
troller  has  been  given  power  to  audit  certain  accounts  of 
county  treasurers,  including  the  court  and  trust  funds  and 
the  accounts  for  the  inheritance  tax;  while  the  State  Excise 
Commissioner  has  similar  authority  over  the  accounts  for  the 
liquor  tax.  The  introduction  of  the  Comptroller’s  audit  dis¬ 
closed  inextricable  confusion  in  the  various  accounts  of  county 
treasurers,  and  that  within  a  few  years  before  there  had  been 
defalcations  or  shortages  in  thirty-three  of  the  sixty  counties 
in  the  state.  A  uniform  system  of  book-keeping  has  now 
been  introduced  for  these  special  funds,  which  with  the 
regular  audit  discovers  and  often  prevents  deficits  and 
defalcations.12 

In  1903  a  statute  was  enacted  requiring  all  cities  in  the 
state  with  less  than  250,000  population  to  make  uniform  finan¬ 
cial  reports  to  the  Secretary  of  State.  But  as  no  provision 
was  made  for  uniformity  of  accounts  or  for  an  examination 
or  audit  of  the  books  of  the  city  officers  nothing  has  as  yet 
been  accomplished  under  this  provision. 

Until  two  years  ago  this  movement  towards  state  super¬ 
vision  of  local  accounts  was  confined  to  the  less  important  states 
and  to  such  partial  measures  in  the  larger  states  as  have  been 
noted.  But  in  1902,  the  state  of  Ohio  enacted  the  most  im¬ 
portant  law  on  the  subject  yet  adopted.  This  provided  for  a 
uniform  system  of  accounting,  auditing  and  reporting  for  every 

10  Laws  of  1903,  chs.  78,  123. 

11  Laws  of  1903,  chs.  14,  71. 

12  Fairlie:  Centralization  of  Administration  in  New  York  State,  pp.  185- 
186  (Columbia  Univ.  Studies  in  Political  Science,  vol.  9). 


II 


public  office  in  that  state,  under  the  supervision  of  a  newly 
established  bureau  of  inspection  in  the  office  of  the  Auditor 
of  State.  The  act  requires  separate  accounts  for  every  ap¬ 
propriation  or  fund,  and  for  every  department,  institution, 
public  improvement,  or  public  service  industry;  provides  for 
full  financial  reports  to  the  Auditor  of  State;  and  authorizes 
annual  examinations  of  the  finances  of  all  public  offices,  with 
power  to  the  examiners  to  subpoena  witnesses  and  examine 
them  under  oath. 

To  carry  out  the  provisions  of  the  act  three  deputies  and 
a  clerk  were  appointed  by  the  Auditor  of  State,  all  of  whom 
were  former  county  auditors  and  experienced  in  local  methods. 
These,  with  the  assistance  of  expert  accountants  who  had  given 
special  attention  to  municipal  accounting,  and  after  a  thorough 
investigation  of  existing  practices,  prepared  complete  systems 
of  accounting  which  have  been  installed  throughout  the  state 
in  the  offices  of  county  auditors  and  treasurers,  city  auditors 
and  treasurers,  village  clerks  and  treasurers,  school  district 
clerks  and  treasurers,  and  township  clerks  and  treasurers.  The 
first  examinations  of  the  accounts  are  now  being  made  by  the 
examiners  of  the  bureau;  and  from  theif  reports  comparative 
statistics  of  local  finances  covering  the  whole  state  of  Ohio 
will  be  published. 


This  brief  description  of  these  various  measures  must  bring 
into  clearer  light  their  significance  and  the  tendency  which  they 
illustrate.  No  one  considered  by  itself,  nor  even  all  that  has 
been  done  in  any  single  state,  may  seem  of  very  large  import¬ 
ance.  But  when  the  detached  and  apparently  disconnected 
pieces  have  been  brought  together,  it  must  be  evident  that  in 
the  aggregate  they  indicate  a  distinct  movement  towards  state 
supervision  of  local  finance.  We  may  therefore  inquire  into 
the  rationale  of  such  a  movement,  and  consider  to  what  extent 
it  should  be  encouraged. 

In  some  respects  the  movement  may  seem  in  conflict  with 
general  principles  which  are  still  declared  to  be  fundamental 
in  our  American  system  of  government.  It  must  be  admitted 
at  least  that  it  is  not  consistent  with  the  most  extreme  demands 


12 


for  local  autonomy;  and  that  state  control  is  not  so  clearly 
justified  in  this  field  by  a  general  state  interest,  as  is  the  case 
in  state  supervision  of  health  administration,  schools,  or  the 
local  management  of  state  finances. 

If  however,  instead  of  unreasoned  ideas,  we  apply  the  prin¬ 
ciples  of  such  political  thinkers  as  John  Stuart  Mill  and  Henry 
Sidgwick,  it  will  be  seen  that  this  movement  is  in  entire 
)  accord  with  a  rational  political  philosophy.  These  writers 
recognize  fully  the  advantages  of  locally  elected  authorities 
for  matters  of  local  interest,  as  well  as  for  the  sake  of  the  poli¬ 
tical  education  of  the  people.  But  they  also  point  out  the  ad- 
.  vantages  of  central  supervision,  not  only  where  the  interests 
of  the  larger  governmental  units  are  directly  concerned,  but 
also  because  of  the  more  complete  information  and  the  larger 
degree  of  technical  efficiency  which  the  higher  government 
can  command.13 

Both  of  these  latter  factors  support  state  supervision  in  the 
two  branches  of  local  finance  that  have  been  noted.  The  as¬ 
sessment  of  property  with  any  approach  to  equality  of  treat¬ 
ment  calls  for  a  high  degree  of  expert  skill,  and  the  compari¬ 
son  of  conditions  over  a  wide  area.  A  uniform  system  of 
accounting  is  essential  for  accurate  information  on  public  ex¬ 
penditures,  and  for  the  comparison  of  outlay  with  returns  in 
u  the  many  branches  of  local  administration.  And  state  control 
over  the  accounts  of  local  public  authorities  is  certainly  as  im¬ 
portant  as  the  control  that  has  been  established  in  most  states 
over  the  accounts  of  private  corporations,  such  as  railroads, 
banks  and  insurance  companies.  It  may  also  be  noted  that  the 
state  supervision  established  over  local  finance  does  not  re¬ 
strict  local  management  where  local  control  is  essential, — in 
determining  the  amount  and  distribution  of  expenditures. 

In  conclusion  attention  may  be  called  to  another  branch  of 
local  finance  where  a  system  of  state  administrative  supervision 
is  urgently  needed, — over  the  loans  and  debts  of  local  authori¬ 
ties.  The  need  for  some  control  here  is  already  recognized 
in  the  constitutional  and  statutory  debt  limits  established. 

13  Mill:  Representative  Government,  ch.  15.  Sidgwick:  Elements  of 
Politics,  ch.  25. 


i3 


But  these  arbitrary  limits  do  not  and  cannot  adjust  themselves 
to  the  varying  needs  and  conditions  of  different  local  com¬ 
munities.  There  is  a  great  difference  between  a  debt  incurred 
for  water  works,  which  will  be  met  by  the  revenue  from  the 
undertaking,  and  a  debt  for  parks  which  must  be  paid  from 
general  taxation,  and  a  debt  for  street  paving  that  may  be 
worn  out  in  ten  years.  To  decide  whether  additional  debt 
may  be  safely  incurred  can  be  determined  wisely  only  after  a 
careful  examination  of  a  complex  financial  situation,  involv¬ 
ing  a  study,  not  merely  of  the  aggregate  amount  of  existing 
debt,  but  also  of  the  provisions  for  meeting  this  debt  and  of 
the  resources  of  the  local  government  concerned.  Such  an 
examination  requires  expert  technical  knowledge,  which  is 
entirely  absent  from  the  present  crude  legislative  limitations, 
and  can  only  be  supplied  by  a  permanent  administrative 
authority. 


